Customer Notes and Accounts Receivable

Internal Controls

Accounting Controls

Credit and Collection procedures are important because the issuance of credit affects both profitability and operating capital.

Aged analyses of notes and accounts receivable should be prepared monthly in support of the General Ledger accounts.

Adequate records of collection activities on delinquent accounts should be maintained.

The person controlling or posting to customer accounts should not have access to or make entries recording cash receipts or disbursements.

Past due receivables should be frequently followed and reviewed by management on a monthly basis.  A decision should be made as to whether delinquent accounts should be turned over to a collection agency.

The dealer or his appointed representative should approve all bad debt write-offs.  Professional tax and accounting advice should be obtained regarding proper handling of bad debt write-offs.

Adjustments or credits to customer accounts should be made only upon receipt of authorized approval.

Credit should not be extended until a customer’s credit application has been reviewed, references checked and a decision to approve the application is made.

The responsibility for granting credit should be assigned to a specific individual; preferably the one responsible for the collection of customer accounts.

Monthly statements should be promptly mailed to all customers.  If possible someone other than the Accounts Receivable Clerk should determine that a monthly statement is prepared for each open balance on the accounts receivable schedule before mailing.

Customer addresses and phones numbers should be included in the accounts receivable records.

The collection of a dealership employee’s delinquent account should be made using a systematic procedure for payroll deductions, unless prohibited by law.